Your business structure determines many things, such as the kind and the amount of taxes you will pay, how many people will be in business with you, how you will register it, etc. That’s why choosing the right business entity or structure is extremely important. There are many different kinds of structures and each of them has pros and cons but all of these may be relative depending on your goals and needs.
Following are some factors to consider when choosing the right business entity for yourself:
Taxes is one of the major concerns of new businessmen. Certain types of business entities like partnership and sole proprietorship allow business owners to be taxed only once. However, there are some entities like close corporation and C-corporation that have double taxation. So, you must consider this factor when choosing a business structure.
Some business entities offer maximum liability protection while others do not. For instance, if your business gets a lawsuit, who pays? The answer to this question depends on the type of business entity your business has. Generally, it would be best to choose business entity that offers maximum liability protection, particularly for a business that is a high-risk venture.
Control and Management
Your business entity often decides how much control you and the other stakeholders would have over the business. The sole proprietorship is the way to go if you want maximum control. On the other hand, if there are other stakeholders, there are entities which can determine the amount of control they will have.
Look into the management aspect of each entity if control is an issue and choose what will be most acceptable for you.
Continuity and Transferability
If you don’t really know how long you will be in business, then it is recommended that you consider lifespan or continuity of your business. There are entities which can grant unlimited life for a business which means even if the stakeholders sell their share or the owners die, the business can continue. Some entities don’t allow this and are dissolved easily in certain situations like buying out, divorce, the partner moving out, owner’s death, etc.
Transferability is another factor that you should consider. Partnerships and LLCs will have a harder time of transferring their interests or shares without company getting dissolved or a buyout agreement. Corporate structures on the other hand, give the owners ease in transferring their shares to another member or stockholder simply by signing it over.
Simpler entities like partnerships and sole proprietorships can be set up for a minimal cost. On the other hand, corporate entities have a lot of paperwork that requires some real hard cash to run. If you think you will need additional capital later on, then it is recommended that you consider a business entity that will allow you to do it with minimum fuss.
The Bottom Line
No one can tell what business entity is right for you, but yourself. A lot of careful deliberation is required when it comes to choosing the right entity. Apart from the above-mentioned factors, you should also consider your management capability and your resources at hand. These will help you identify the right business entity for you.